174 FOREST VALUATION 



Four methods may be used in determining depreciation. 



Method A. The total depreciation may be refunded by de- 

 positing each year in a savings bank, at p per cent, or investing 

 and reinvesting, annual sums in such a way as to earn compound 

 interest, so that the total of principal and interest at the end 

 of the period equals the depreciation. This fund is not returned 

 to the owners until the expiration of the period. Their capital 

 investment remains at its original figure, and the annual divi- 

 dends are declared on this basis. 



Let X = annual sum for depreciation. 



Then (i.op n - i) = D, (See III.) 



o.op 



This method is seldom, if ever, employed in connection with 

 annual business, although it is practical as the basis of a sinking 

 fund for the payment of bonds. 



The other three methods neglect the factor of compound 

 interest on the annual payments, and undertake to repay, 

 through a series of years, sums whose cash total will just equal 

 the total depreciation. 



Method B. This method proposes to pay the total depre- 

 ciation in equal annual instalments covering the requisite 

 period. The formula is 



D A -W /Tt . 



X = - or (PO 



n n 



The method is used more widely than any other and is easily 

 understood and applied. Actual return to investors of this 

 annual appropriation for depreciation would have the result of 

 diminishing the capital investment annually. 



Method C. Instead of depreciating the capital by equal 

 amounts annually, the depreciation may be made to equal a 

 fixed per cent annually of the residual value of the capital; 

 its value less previous depreciation. By this means, depre- 



